Donald Trump’s election victory has sparked a rally in US stocks, propelling them to new all-time highs, while the dollar has surged to its strongest level in two years. However, this financial optimism is not shared globally. Equities outside the United States have taken a hit, with the MSCI World Index slipping to its lowest level in three months. Developing-market currencies have also been under pressure, losing more than 1% since the election results were announced, nearly wiping out gains made earlier in the year. Meanwhile, European stocks and the euro have faced significant declines.
As Trump’s cabinet begins to take shape, the divide between US and non-US assets has become even more apparent. Key cabinet appointments, often filled by Trump loyalists, have reinforced investor concerns about the potential for protectionist policies, especially the introduction of higher tariffs on countries like China. These fears have grown as Trump’s “America First” agenda takes form, potentially stoking inflation and complicating the policies of central banks globally.
This uncertainty has prompted investors to seek refuge in US assets. According to a Bank of America survey, fund managers’ exposure to US stocks has reached its highest level since 2013. In contrast, emerging markets—particularly those seen as vulnerable to Trump’s trade policies, like China and Mexico—have experienced significant sell-offs.
Rajeev De Mello, chief investment officer at Gama Asset Management, explained that Trump’s more domestically focused policies are likely to benefit US companies. “We reduced risk ahead of the US election, and now it’s time to increase exposure to US assets while rotating into investments that will gain from Trump’s expected policy choices,” he said.
The market turbulence continued into Wednesday, with the MSCI benchmark for Asian stocks falling more than 1%, setting the stage for a weak European session. South Korean stocks were among the hardest hit, with shares in Samsung Electronics dropping as investors pulled out amid growing concerns about trade protectionism.
The dollar, meanwhile, continues to climb, reaching its highest level since November 2022, according to a Bloomberg gauge.
Market participants are closely watching Trump’s cabinet appointments for further signs of how his campaign promises will translate into policies. During his campaign, Trump vowed to impose significant new tariffs, including a 20% tax on all foreign imports and potentially much higher tariffs on Chinese goods. This has reignited fears of a trade war, which could disrupt global supply chains and negatively affect companies reliant on US exports.
In addition to trade concerns, Trump’s proposals for mass deportations and tax cuts could fuel inflation and limit the Federal Reserve’s ability to lower interest rates, further influencing market dynamics.
As the dollar strengthens and emerging market currencies weaken, several central banks, including Bank Indonesia and Brazil’s Banco Central, have intervened in the currency markets to stabilize their respective currencies. The People’s Bank of China also set its yuan reference rate stronger than expected, signaling its discomfort with the currency’s weakness amid the looming threat of US tariffs.
Despite the global challenges, some markets are considered relatively safe from the fallout. Investors at firms like Pictet Asset Management have increased their positions in countries like India, which are seen as less vulnerable to Trump’s protectionist policies. The possibility of Chinese goods facing higher tariffs could also lead to investment shifting away from China to Southeast Asia, according to Kasikorn Asset Management.
For now, US assets are emerging as clear winners, with some analysts confident in their continued outperformance. Michael Brown, senior strategist at Pepperstone Group, noted, “The ‘US exceptionalism’ theme seems to have plenty of momentum. I remain bullish on US equities, especially with the incoming Trump administration likely to boost economic growth and corporate earnings through tax cuts.”
In the wake of Trump’s election, the financial landscape is sharply divided: while US assets shine, the rest of the world faces growing uncertainty.
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